HOW MUCH COVER IS ENOUGH
By: Brendan Houston-Brown :-
Ensuring that you and your loved ones are properly cared for, is more often than not, a priority in anyone’s life.
When it comes to covering shortfalls for events like Death, Disability, Dreaded Diseases, most people turn to Life Assurance for most of their lives. However, the question is “How much is enough?”
GET THE DEBT PAID OFF
First and foremost, when faced with any of these scenarios, the priority is to ensure that you have enough cover to settle all of your debt. Nobody needs the stress of death or disability, or the advent of a dreaded disease or retirement, coupled to the stress of masses of debt which needs to be serviced on a lessor income.
WHAT ABOUT THE INCOME NEED
Most Financial Planners will take the simplistic view of stating that for every million you take out in cover, will provide you with an income of R5000.00 per month. (6% of a million is R60 000.00 per annum, hence the R5 000.00 per month.)
This is all well and good but can be an expensive method of providing the solution, as it retains your capital till your death. Using this simple method, one ensures that you will have an income for the rest of your life, but the question one needs to ask is whether it is necessary, and affordable to get to the end of one’s life, leaving a large sum of money in your annuities or investments. Whist these funds will devolve to your beneficiaries, providing for that level of investment, by means of Life / Disability Cover, can be an expensive waste, and the premiums would be better spent in retirement or other types of investments.
The more complex solution is that one needs to do a detailed analysis of your needs for each event and plan the provision of funds based on various educated assumptions and factors, like inflation, life expectancies, growth rates, costs and provisions, and provide an amount of cover to fill the gap, to provide a sum that would be expected to run out at an assumed point in time.
The planning for income to provide for the family at the death of a breadwinner, is very different from the planning for income for a disabled breadwinner, along with the needs of the family. In addition, one must never underestimate the financial impact that a dreaded disease will have on a family, and in the case of a breadwinner, on his or her ability to cope mentally after the circumstance, even when fully recovered.
One must consider additional factors like a contingency fund for longevity, be it a fund or assets that one can fall back on, and likewise for inheritances.
If you rely on your Professional Advisor to do a proper Financial Needs Analysis, you will be able to rest assured that you are spending the minimum required for Life Assurance products, and the maximum on Investments, thereby enhancing your net worth for lifestyle and retirement.
PLANNING YOUR LAST WILL AND TESTAMENT
You must always remember that a Last Will and Testament can be a worthless document, if you have not planned for the necessary assets that will allow the Executor and Trustees to be able to execute your final wishes. Simply leaving everything to your spouse and other beneficiaries does not suffice when your creditors have the first call on your assets. Likewise, if you leave all your insurance to your spouse, and leave little in your estate, unless she pays off the debt, the creditors will repossess the assets.
Do you have a Last Will and Testament, is it executable and is it based on a competent analysis of your needs? If not, then it’s time to sit down with your Financial Planner. Give us a call today.